No-lockdown strategy helped companies in Sweden avoid the worst-case scenario predicted by experts. Despite many debates and scary predictions Sweden seems to choose the correct course with one after another Swedish companies have been beating expectations: from telecoms equipment maker Ericsson to consumer appliances manufacturer Electrolux via lender Handelsbanken and lockmaker Assa Abloy. “I have never seen such a high proportion of companies coming in with better profits than expected. It’s almost every company,” said Esbjorn Lundevall, chief equity strategist at lender SEB.
“Keeping society open, schools open, doesn’t mean that we haven’t been hit. But it does mean that we haven’t suddenly not been able to leave our homes. That has undoubtedly helped companies,” Alrik Danielson, chief executive of Swedish bearings manufacturer SKF.
SKF, whose ball bearings are used in everything from paper machines to cars has kept its offices in Sweden open throughout the crisis and expects workers to come in unless they are ill. Its second-quarter underlying operating profits in the three months to June fell by almost half compared with a year ago but were still a third ahead of analyst expectations. “We have quickly adapted to the new reality, even though we don’t know how it will be going forward,” said Mr Danielson. SKF’s sashed are steadily flat since the start of the year but have increased by more than half since their lowest point in March, when the pandemic started. Sweden’s death rate has been a way higher than neighbouring Norway, Denmark and Finland, causing controversial discussions around the world. But its excess mortality levels have been lower than in many European countries, such as UK, France and Spain, which were under a lockdown.
It is a similar situation terms of the predicted economic impact. Economists and central banks forecast that GDP level in Sweden should decrease by roughly 5 per cent, similar to Norway and Denmark and far better than in Italy, the UK or France. Despite predictions, Swedbank reported pre-tax profit in the second quarter of SKr6bn, down slightly year-on-year but almost 40 per cent ahead of analyst expectations. Jens Henriksson, a Chief executive commented: “I’m not going to say yes or no. We have not been as closed down. And that translates into a positive effect. If you look at the Swedish economy, we’ve seen signs that it’s picking up.”He added that big companies, which had rushed to Swedbank for loans at the start of the coronavirus pandemic have already started repaying, while smaller businesses had not borrowed as much as many had expected.
The housing market has also stayed robust, with SEB’s confidence indicator showing its biggest ever improvement from June to July. Experts highlight that there is a split between Swedish companies into those with a heavy domestic focus, such as retail banks, and the manufactures. The first benefited the most from anti-lockdown approach while the second as large contributors to the export sector were exposed to reduced global demand.
Car manufacturer Volvo Group, industrial groups Alfa-Laval, Trelleborg and SKF, and medical technology company Getinge all have not done much profits in the past quarter but beat experts’ forecasts. Ericsson boosted its operating profit in the quarter while Electrolux almost broke even, showing much more positive results than was estimated. One possible explanation is simply that experts were too negative about the impact of coronavirus, not just in Sweden but across Europe.
Thechief executive at Volvo, Martin Lundstedt, said the 38% drop in sales in the period was “unprecedented” but due to quickly made deep cost cuts the group was able to make profit despite disruption to the group’s supply chains. However, he has mentioned that the Swedish approach to the lockdown had “rather limited effect” given the disruption to supply chains beyond the country’s borders. “We are too intertwined with other countries,” he said. “It’s more about the fact that a lot of Swedish companies have been working on flexibility.”
All industrial groups were encouraged by signs of recovery in China and a robust early rebound in other countries in Europe, as well as government support to maintain jobs.
Automakers are expected to run assembly lines at slower rates until demand climbs back toward pre-crisis levels.
Europe's car industry, which accounts for about 14 million jobs across the region, is eager to get back to work, even though it's unclear whether buyers will return to showrooms once lockdowns are lifted.
Unlike Italy and Spain, Germany never banned car production, though factories came to a standstill after authorities restricted the movement of people and ordered the closure of car dealerships, hitting demand.
Daimler's Mercedes-Benz German plants in Sindelfingen and Bremen are also making preparations to ramp up production.
Workers need to come to the plant already wearing their factory clothes, to avoid time stuck in changing rooms, and designated pathways in the plant have been altered to ensure there is "one-way" traffic only, BMW said.
Workers need to wear masks and keep a distance to one another. The seating order on BMW factory buses has been changed, as has the process for entering and exiting the bus.
BMW will initially start production at the plants with one shift. Normally, the plants work in two or three shifts. To protect the employees, hygiene and distance regulations are established and processes are reorganized.
BMW's factory in Shenyang, China, has been producing since Feb. 17.
"The exact dates for the restart will depend on the development in the markets and customer demand," a BMW spokesperson said.
The automaker's German plants in Munich, Leipzig and Regensburg will open after May 18, as will the company's factory that builds Mini cars in Oxford, England.
BMW plans to restart output at its biggest European plant in Dingolfing, Germany, and in San Luis Potosi, Mexico, on May 11.
BMW aims to reopen its factory building Rolls-Royce cars in Goodwood, England, on May 4, and resume production at its U.S. plant in Spartanburg, South Carolina, which builds SUVs for global markets, on the same day.
Mini, Rolls-Royce restarts
VW's other plants in Germany and in Portugal, Spain, Russia and the U.S. will restart production in the week from April 27, the automaker said in a news release. Through May, production will be resumed successively in South Africa, Argentina, Brazil and Mexico, VW said.
Encouraged by a fall in infection rates, Germany has allowed small retail stores, including car dealerships, to reopen, provided they adhere to strict distancing and hygiene rules. VW said about 70 percent of its dealerships in Germany had re-opened.
VW resumed production of its battery-powered ID3 hatchback on Thursday. Deliveries of the ID3 are due to start in Europe in the summer. It's a key launch for VW as the first vehicle in its new generation of affordable, long-range electric cars. The automaker's factory in Bratislava, which builds Porsche, VW and Audi large SUVs and minicars, also reopened on Thursday.
Production capacity in the Wolfsburg plant will be at around 10 per cent to 15 percent to begin with, and reach around 40 percent of pre-crisis levels in the week after, said Andreas Tostmann, VW brand's board member responsible for production.
BMW, VW and Daimler, are banking on Germany's ability to trace and contain the coronavirus, and a healthcare system capable of extensive testing to identify possible carriers of the disease.
VW restarted production at its home plant in Wolfsburg on Monday, while BMW is cranking up engine manufacturing, also starting Monday.
BMW and Volkswagen are among European automakers rebooting their car factories to take advantage of easing coronavirus lockdown rules.
Merkel has been talking with the automotive industry, which forms the backbone of the German economy, to find a way to restart production. The talks are focused on automotive suppliers that might not be able to survive extended production shutdowns.
Germany’s automotive lobby group and the country’s largest union called on Chancellor Angela Merkel to allow car sales in the country to resume as soon as possible.
